A SUMMARY OF THOUGHTS: INNOVATION & ENTREPRENEURSHIP IV

[continued from the Last Post.]

(2) The next strategy, “Hit Them Where They Ain’t”, is a case of the follower of a market leader successfully exploiting the market leader’s innovation, to the detriment of the original innovator.

This strategy hits home as one of the major weaknesses of the “Fastest with the Mostest” strategy: the most innovative product without a market is a cost center, not a profit center.

Drucker cites as examples:

• IBM was a market follower within the Personal Computer market. The IBM PC was neither the first nor the most innovative, but the market that IBM pursued was the business market; meanwhile, Apple sought to dominate the educational market. IBM established itself with enduring prominence.

• The Hattori Company in Japan took a Swiss innovation, the quartz watch, and created a market winner with the Seiko brand. This was enabled by the Swiss shelving their new idea after demonstrating its feasibility.

• Sony, not in consumer electronics at the time, purchased a license for transistor technology from Bell Labs. Starting with cheap portable radios, she became a major player in the home electronics market.

Drucker lists five “fairly common bad habits that enable newcomers to use entrepreneurial judo and to catapult themselves into a leadership position in an industry.” These five habits, allowing competitors to use the “Hit Them Where They Ain’t” strategy, are:

• The Not Invented Here (NIH) syndrome (the arrogance that leads a business or profession to believe that something new cannot be any good unless they themselves thought of it).

• The tendency to “cream” a market by staying in the high profit zone, with a concomitant tendency to keep costs high. This led to US automobile manufacturers permitting entry by Japanese auto makers into the low end of the auto market in the 1970’s, thereby providing the vital foothold the Japanese needed to become competitive throughout all segments of the US automobile market.

• Believing that quality is something a supplier puts into a product rather than understanding that quality is something that the consumer gets out of the product.

• The belief that the consumer will pay a premium price thereby keeping prices high, which in turn lures competitors into the market if the market entry barriers are sufficiently low.

• Maximizing rather than optimizing, a habit that contributed to the destruction of Burgmaster.

[To be continued in the Next Post. Excerpted from the 'Lifescaping' seminar participant's manual. The 'Lifescaping' seminar is conducted by Dilip Mukerjea about four times a year under the auspices of the Singapore Institute of Management.]